Silver Price Analysis: XAG/USD slides back under $25.00 as risk appetite ends week on front foot

  • Silver prices sold off on Friday as risk appetite elsewhere continued to improve, with XAG/USD falling back under $25.00.
  • But silver continues to trade well within recent ranges as traders monitor geopolitical developments.

A strong finish to a strong week for US (and global) equities has seen safe-haven silver come back under selling pressure on the final day of the week, despite the fact that long-term US yields are lower and the shape of the curve flashing recession warnings. Spot silver (XAG/USD) was last down nearly 2.0%, having dropped all the way back from the $25.40s to current levels around $24.90, meaning the precious metal is now back to the south of its 21-Day Moving Average.

Whilst geopolitics remains the major driving force in the market right now, as traders/market participants assess the prospect of a potential Russo-Ukraine peace deal, the Fed has also been a big talking point this week. Fed policymakers were out in force on Friday, with James Bullard and Christopher Waller throwing their support behind an aggressive hiking cycle that would see rates going well above so-called “neutral” by the end of the year, while other Fed speakers were a bit more measures.

The hawkish remarks from Bullard and Waller seemed to boost the market’s implied probability of a 50bps hike at the Fed’s next meeting, which might arguably have weighed on interest rate-sensitive precious metals like silver. It certainly did seem to push up short-end US yields, with the 2-year rallying 4bps to back above 1.95% and eyeing a test of earlier weekly multi-year highs at 2.0%. Higher yields can hurt demand for non-yielding precious metals by lifting the perceived opportunity cost of holding them.

But, as noted, the US curve is now flashing recession warning signals. 10-year yields fell 5bps no Friday taking the 2s10s spread to under 20bps. When the 2s10s spread turns negative, this has historically been a reliable indicator of an incoming recession with the next year or two, and fears about this might encourage some safe-haven demand, which could ultimately benefit silver.

Ultimately, from a technical perspective, the price action in spot silver on Friday hasn’t been very consequential. At current levels near $24.90, XAG/USD sits near the midpoint of the range $24.50-$25.50ish range that has prevailed over the past few days. A bearish break next week, perhaps if broad risk appetite continues to improve, would open the door to a run towards the 50 and 200DMAs, both of which reside close to $24.00.

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